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Looking Beyond Coffee, Starbucks Seeks a New Digital Future

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Starbucks (s sbux) today announced that it will provide free wireless access in all U.S. company-operated locations starting July 1. And this fall it will launch the Starbucks Digital Network, a partnership with Yahoo (s yhoo) that will provide customers free unrestricted access to pay sites such as the Wall Street Journal. Additional content providers in the new, in-store network offering include iTunes (s aapl), The New York Times, Patch, USA TODAY and ZAGAT.

Starbucks previously offered Wi-Fi access to both registered Starbucks cardholders as well as AT&T (s t) customers. But while many have tried, wireless access by itself is no longer enough to differentiate a company’s services and woo customers. By leveraging premium content relationships, however, the new Starbucks Digital Network offers a significant value-add. It’s a clever move, and a forward-thinking one in terms of content — much like Barnes & Noble’s (s bks) enabling of access to free e-book reading on the Nook device while in the store for an hour a day.

I’ve been considering an iPad (s aapl) subscription to the Wall Street Journal (s nws), but find it a bit too pricey for my tastes. However, I do frequent Starbucks locations on a regular basis already, and I just might turn my occasional Starbucks visit into a daily one if — just like when someone leaves a copy of the paper behind — I can read the Journal there for free. Of course, Starbucks wins big in this situation by combining premium information with its retail locations as the longer I’m in the store enjoying additional content and a wireless connection, the more likely I am to buy a beverage or a bite to eat.

From the consumer side, I see much to like. I’m wondering however, how such new strategies will begin to affect Wi-Fi network companies like Boingo. I currently pay $9.95 a month for Wi-Fi access on the Boingo network, which includes Starbucks locations as well as some hotels and airports. Without the added benefit of premium content, Wi-Fi network providers could face a challenge they didn’t see coming from a pipe that isn’t dumb.

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16 Responses to “Looking Beyond Coffee, Starbucks Seeks a New Digital Future”

  1. Allan Jones

    I live in the UK, but I’ll be in the States for 1 week in early July. I had thought I might be able to open a Boingo account online and just load it with, say, $10-worth of wi-fi access before I set off. That way I’d be able to get online virtually as soon as I landed. But it looks as though it’s a monthly subscription or nothing with Boingo. It’s at times like these you realise how inconvenient so-called ‘mobile’ technology is for people who move around.

    What’s the best way for someone like me to get online? No doubt there are free services, but I often find with free services you get what you pay for. I don’t mind paying a modest amount once-off to get a simple, reliable connection as I travel around.

    • Allan, Boingo does sell Wi-Fi credits but only through its iPhone app, so that probably won’t help you. For what it’s worth: it’s typically not a hassle to cancel your Boingo subscription, so even if you buy one for the month, it could work for you.

    • “I had thought I might be able to open a Boingo account online and just load it with, say, $10-worth of wi-fi access before I set off.”

      Boingo charges $10 a month for unlimited U.S. access. You can cancel after a month. So…what’s the problem?

  2. Scotty

    The scariest part of your article to me was that you felt they could get people to go there every day to eat and surf the de-pay-walled content.

    Starbucks has not exactly lead the industry in creating healthy food to feed it’s customers. An excellent example of this is their Tarragon Chicken Salad sandwich. The 1.2 grams of salt is only exceeded by the 15 grams of sugar.

    One of these days they’re going to wake up and realize they can’t offer unhealthy “treats” with one hand and “come in daily” enticements with the other and have happy healthy customers.

  3. Don’t underestimate the importance of “one-click” sign-on, which is almost as important as “free”. Most users know the frustration of trying to sign onto a balky coffee shop or airport wireless system. If Starbucks and AT&T can make sign-on really just one-click, they’ll sell enough extra coffee to make it worthwhile.

  4. You forget that Boingo Wireless operates Wi-Fi in most of the airports in North America. That’s where the money is, as well as in providing free roaming onto hotel Wi-Fi and in-room Ethernet networks. I have a Boingo subscription, even though I travel little, because I would otherwise typically spend $10 to $50 during one trip for dribs and drabs of Wi-Fi.

    Even as airports go free, most of them will want an outside contractor to operate the Wi-Fi network. Boingo also handles the cellular arrangements in many of the airports to which it provides Wi-Fi.

    I’d worry more about things like the iPad with 3G, and mobile hotspot or phone tethering with Android 2.2, iOS 4 (AT&T), Evo 4G, etc. While with AT&T’s 3G data plan change recently, unlimited 3G will be a thing of the past, the limits are high enough and inexpensive enough, that people may opt to use 3G instead of Wi-Fi in places where Wi-Fi is offered at a fee.

    • Glenn, I didn’t forget that — it’s in the tail end of the post. ;) And there are few airports that don’t have a Starbucks, so I still think that for some few, Boingo may be overkill now. Still, for $10 a month, it’s cheap insurance, especially in hotels.

      For me personally, I think I will drop it. I have a MiFi that’s capped at 5GB, but my T-Mo smartphone plan is unlimited — with it and Froyo on my Nexus One I have a second wireless connection to supplement the free Wi-Fi at Starbucks.

      • Glenn Fleishman

        You missed my point: Boingo itself runs the airport service. You were talking about Boingo’s consumer-facing subscription service; I’m talking about their backend business model.

        Airport Starbucks are not included, just like today. Starbucks only offers Wi-Fi in its company-owned stores, which are (pretty much entirely as I understand it) freestanding stores or mall tenants, not kiosks. (I don’t know about full-scale Starbucks in airports, but I was told long ago that those aren’t owned by *$).

        But you reminded me after getting a 3G iPad, I’m not using Boingo any more, so I canceled my account. Thanks!

        (Your “unlimited” T-Mobile account throttles, probably to 64 Kbps like in Europe, after 5 GB. Check the contract — it’s doesn’t tell you what rate it throttles to, but it throttles.)

      • Gotcha. No, I can’t see how this would affect Boingo from an infrastructure management standpoint, but I do suspect it will cut into their consumer revenues. They lost 2 customers — you and me — already!

        I think the release said this applied to company operated stores, hard to say which of those are in airports and such. And yes, you’re absolutely correct: T-Mo reserves the right to throttle speeds after 5GB, but my usage patterns keep me well under that with my phone. I only use the phone as a hotspot if I left the MiFi at home, am nearing the limit on it or I’ve drained the battery.

    • In my experience, when airports offer only a paid Wi-Fi service they prevent stores like Starbucks from offering free (or any) service. One of the terminals in Atlanta has a new place where you can rent a small room with couch, desk and TV by the hour for a nap or meeting between flights. But they can’t provide Wi-Fi service due to airport rules – great way to annoy customers.

      However the days of the paid Wi-Fi in airports and hotels are probably numbered. There’s pressure from customers of places like Starbucks who expect the full experience, including free Wi-Fi, wherever they see they Starbucks sign. There’s pressure from travelers asking the airport managers why they have to pay $10 to check their e-mail for 5 minutes.

      By requiring travelers to pay, all they do is inconvenience people – casual users won’t pay and serious users will bring their own. Compared to other amenities that airports might consider Wi-Fi is probably cheap to build and maintain.

  5. How about this? When you download music at a Starbucks from an affiliated music site (or on a CD on sale in the store), you get a play on the in-store jukebox. So you can hear your music right away, and others might hear and like it.

    I haven’t been in a Starbucks in months, but I doubt that I’ll escape forever.